Weak New Zealand Business Confidence Adds to Rate-Cut Pressure
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Loading... - Fiona Martel
- 02 Jul 2024
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New Zealand businesses have grown increasingly pessimistic about the economy, heightening the risk of another contraction and putting pressure on the central bank to cut interest rates sooner than anticipated. According to the New Zealand Institute of Economic Research (NZIER), a net 44% of firms are pessimistic about the economic outlook for the next six months, a significant increase from 25% in the first quarter. The Quarterly Survey of Business Opinion revealed that a net 28% of businesses reported deteriorating trading conditions in the three months to March, marking the weakest reading since the mid-2020 Covid-19 pandemic.
The central bank of New Zealand has maintained high interest rates to slow demand and curb inflation, leading to squeezed company profits and job cuts, as shown in the report. With the economy having contracted in four of the past six quarters, there is a growing concern that it could slow even further in 2024.
“These results suggest the potential for a contraction in the economy over the coming year,” said NZIER principal economist Christina Leung. She indicated that this contraction could occur in the second quarter or later, depending on broader economic developments.
NZIER currently predicts that the Reserve Bank of New Zealand (RBNZ) will begin cutting the Official Cash Rate (OCR) in May next year. However, Leung noted that the latest results could prompt an earlier start to the easing cycle.
Mark Smith, senior economist at ASB Bank in Auckland, pointed out that evidence of declining inflation pressure is “encouraging for the RBNZ.” While his team is reviewing their OCR forecast, he suggested that rate cuts could happen as soon as November. Nevertheless, Smith added that the RBNZ might choose to err on the side of caution, potentially delaying cuts until 2025.
